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Threshold Effect and Financial Intermediation in Economic Development

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  • Augier, Laurent
  • Soedarmono, Wahyoe

Abstract

This paper analyzes the theoretical finance-growth nexus. Using the Neoclassical growth framework, we raise a new issue where our finance-growth nexus has multiple stationary states with threshold effect. Threshold effect prevents the economy to reach long-run steady state equilibrium of capital and hence financial economists in developing countries should be aware of such an impediment. We show that the development of banking sector should be more supported than financial market, since banking sector is better than financial market in order to reduce threshold effect and ensure the existence and uniqueness of a higher long-run steady state equilibrium of capital stock.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20494.

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Date of creation: 05 Feb 2010
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Handle: RePEc:pra:mprapa:20494

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Keywords: Threshold Effect; Financial Intermediation; Economic Growth; Developing Countries;

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Citations

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Cited by:
  1. Wahyoe Soedarmono & Amine Tarazi, 2013. "Bank Opacity, Intermediation Cost and Globalization: Evidence from a Sample of Publicly Traded Banks in Asia," Working Papers hal-00916564, HAL.
  2. Stolbov, Mikhail, 2012. "The finance-growth nexus revisited: From origins to a modern theoretical landscape," Economics Discussion Papers 2012-45, Kiel Institute for the World Economy.
  3. Jean-pierre Allegret & Sana Azzabi, 2013. "Financial development, threshold effects and convergence in developing and emerging countries," Economics Bulletin, AccessEcon, vol. 33(3), pages 1899-1921.

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